A top official with Standard Chartered Bank in Thailand agreed there was no need to move on interest rates now but felt it may still be required even after this year as the government faces a continuing challenge until this crisis is over and that means a successful vaccination campaign.

The Bank of Thailand left its key interest rate unchanged this week after its Monetary Policy Committee meeting but sounded a cautious note about short and medium term economic prospects hindered by the second wave of the Covid-19 virus in the kingdom. It cites concerns about rising unemployment and the need for the government to deploy fiscal stimulus until a recovery is achieved after a successful vaccination programme.

The press was briefed after Tuesday’s meeting of the Monetary Policy Committee by Secretary Titanun Mallikamas who explained that risks to the economy in the short term and medium term warrant a revision of the bank’s growth outlook for 2021 downwards at this time as rates remain unchanged.

The Bank of Thailand has adopted a more hawkish view on future economic prospects after its Monetary Policy Committee meeting on Tuesday in which the seven members of the oversight group voted unanimously to keep interest rates unchanged at a record low of 0.5%.

The bank, since last year, has dropped the interest rate three times by 0.25 points in response to the economic setbacks caused by the Covid-19 outbreak.

Decision correct says Standard Chartered Bank analyst

The decision was welcomed by Mr Tim Leelahaphan of Standard Chartered Bank who also expressed concern about the economic situation in the medium term. ‘We expect the MPC to keep the policy rate unchanged at 0.5% throughout 2021 given limited monetary policy space, but we see a policy bias towards further rate cuts,’ he explained. ‘The current economic situation does not warrant a further rate cut yet, in our view.’

Contrast to comments by Minister of Finance 

In its commentary on the economic situation, the bank’s outlook contrasted with a more confident assessment issued by Finance Minister Arkhom Termpittayapaisith, this week, when he assured the public and market that Thailand has the financial ability to deal with any eventuality that the struggle against the Covid-19 virus presents.

Mr Arkhom also highlighted the positive potential of Thailand’s export sector, the country’s key economic driver.

Monetary Policy Committee indicated a revised, lower projection for economic growth for 2021 as of now

The Monetary Policy Committee indicated that a revision of the Bank of Thailand’s current GDP  growth prediction for this year was in the pipeline given the impact of the virus outbreak at the end of December last year.

Titanun Mallikamas is the Secretary of the key committee.

He said that the economy now is on course to grow at a lower rate, at least in the opening months of the year.

‘Fiscal measures must continue to sustain the economy. In particular, the government should expedite budget disbursement under the restoration plan once the new wave of the outbreak is contained,’ he explained. He concluded that the economy would ‘expand somewhat lower than the previous forecast’.

Fiscal Policy Office last week indicated 2.8% growth

The central bank is currently forecasting a 3.2% growth rate for 2021 rising to 4.8% in 2022.

Last week, the Fiscal Policy Office at the Finance Ministry set a 2.8% growth rate for the coming year dropping it from 4.5% in the light of recent developments. 

Both the Monetary Policy Committee and the Fiscal Policy Office focused on the projected numbers for foreign tourist arrivals which has now been revised to 5 million visitors by the Minister of Tourism and Sports from last week.

The central bank had most recently pencilled in 5.5 million visitors.

Foreign tourism recovery is the key to an economic rebound for Thailand according to top agencies

Currently, apart from a trickle of travellers entering through the strict and expensive quarantine process, no tourists are arriving in the kingdom and the recovery of the foreign tourism industry is now dependent on both the country’s own vaccination programme and that in other countries.

Mr Titanun referred to this after the Monetary Policy Committee meeting as the key to recovery in the future.

However, in the meantime, the government was facing an increasingly more challenging labour market with higher unemployment and an economy that will need more stimulus and fiscal support from the state coffers.

More government fiscal stimulus required short term

He called for the government to coordinate better between departments and to expedite the disbursement of this year’s budget to help economic momentum.

‘Fiscal measures must continue to sustain the economy. In particular, the government should expedite budget disbursement under the restoration plan once the new wave of the outbreak is contained,’ he said

The top bank official also acknowledged the promising export sector which along with a successful vaccination programme in the kingdom and a return to foreign tourism is the government’s goal for the year.

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Further reading:

Minister positive about the kingdom’s finances and economy as it weathers the Covid-19 storm

Finance Ministry slashes 2021 growth outlook due to Covid-19 and dormant foreign tourism sector since last year

Cabinet eases the burden on struggling firms as tourism sector warns another million jobs will go

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Desperate foreign tourism business concerns are clinging to straws as they try to survive the crisis

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